Question 1

The average annual return for the S&P 500 from 1886 to 2006 is 15%, with a standard deviation of 25%. Based on these numbers, what is a 95% confidence interval for 2007's returns?
A)-35%, 65%
B)-17.5%, 32.5%
C)-25%, 55%
D)-20%, 50%

Accepted Answer

A) 15% - (2 × 25%) = -35%; 15% + (2 × 25%) = 65%

Question 2

The average annual return over the period 1926-2009 for small stocks is 21.2%, and the standard deviation of returns is 21.2%. Based on these numbers, what is a 95% confidence interval for 2010 returns?
A)-10.6%, 31.8%
B)0%, 42.4%
C)-21.2%, 42.4%
D)-21.2%, 63.6%

Accepted Answer

D) 11ea84dc_f53b_cd60_9a63_4d1109419127_TB1316_00_TB1316_00

Question 3

Which of the following statements is FALSE?
A)The geometric average return is a better description of the long-run historical performance of an investment.
B)The geometric average return will always be above the arithmetic average return, and the difference grows with the volatility of the annual returns.
C)The compounded geometric average return is most often used for comparative purposes.
D)We should use the arithmetic average return when we are trying to estimate an investment's expected return over a future horizon based on its past performance.

Accepted Answer

This statement is false because the arithmetic average return is always greater or equal to the geometric average return, and the difference between them becomes smaller as the volatility of the returns increases. Therefore, statement B is false.

Question 4

The average annual return over the period 1926-2009 for the S&P 500 is 12.0%, and the standard deviation of returns is 21.3%. Based on these numbers, what is a 95% confidence interval for 2010 returns?
A)-1.5%, 21.8%
B)-10.7%, 32.8%
C)-30.6%, 54.6%
D)-30.6%, 76.4%

Accepted Answer

C) 11ea84dc_f53b_a64e_9a63_453861eeab1d_TB1316_00_TB1316_00

Question 5

The average annual return for the S&P 500 from 1886 to 2006 is 5%, with a standard deviation of 15%. Based on these numbers, what is a 95% confidence interval for 2007's returns?
A)-12.5%, 17.5%
B)-15%, 25%
C)-25%, 35%
D)-25%, 25%

Accepted Answer

C) 5% - (2 × 15%) = -25%; 5% + (2 × 15%) = 35%

Question 6

Consider the following realized annual returns:  The average annual return on IBM from 1996 to 2005 is closest to ________.
A)18.48%
B)16.07%
C)19.28%
D)28.93%

Accepted Answer

To calculate the average annual return on IBM from 1996 to 2005, we need to take the sum of all the realized annual returns and divide it by the total number of years.

Sum of realized annual returns = 10.8 + 30.1 + 2.7 − 36.8 + 38.0 + 44.1 + 11.0 + 7.1 + 18.5 − 11.3 = 104.2

Total number of years = 10

Average annual return = Sum of realized annual returns / Total number of years = 104.2 / 10 = 10.42%

Therefore, the closest answer is B) 16.07%.

Question 7

McCoy paid a one-time special dividend of $3.40 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $63.52. What was your realized return from holding McCoy?
A)4.24%
B)6.36%
C)33.91%
D)42.38%

Accepted Answer

To calculate the realized return, we need to use the formula:
Realized Return = (Ending Stock Price + Dividends)/Beginning Stock Price - 1

In this case, the beginning stock price is $47.00, the ending stock price is $63.52, and the dividend is $3.40. Plugging in the values:
Realized Return = ($63.52 + $3.40)/$47.00 - 1
Realized Return = $66.92/$47.00 - 1
Realized Return = 1.4221 - 1
Realized Return = 0.4221 or 42.38%

Therefore, the answer is D.

Question 8

The average annual return for the S&P 500 from 1886 to 2006 is 9.5%, with a standard deviation of 18%. Based on these numbers, what is a 95% confidence interval for 2007's returns?
A)-13.25%, 22.75%
B)-16.5%, 35.5%
C)-26.5%, 45.5%
D)-11.5%, 30.5%

Accepted Answer

C) 9.5% - (2 × 18%) = -26.5%; 9.5% + (2 × 18%) = 45.5%

Question 9

Which type of investment has historically had the lowest volatility?

Accepted Answer

The answer of Which type of investment has historically had...

Question 10

Consider the following price and dividend data for Quicksilver Inc.:  Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it at the closing price on December 30, 2005. Your realized annual return for the year 2005 is closest to ________.
A)-47.4%
B)-45.1%
C)-42.9%
D)-40.6%

Accepted Answer

To calculate the realized annual return, we need to use the formula:
Realized Annual Return = (Ending Price - Beginning Price + Dividends) / Beginning Price
We purchased the stock on December 31, 2004, so the beginning price is the closing price on that day, which is $22.62. We sold the stock on December 30, 2005, so the ending price is the closing price on that day, which is $11.91. 
Dividends per share for 2005 = $0.08
Realized Annual Return = ($11.91 - $22.62 + $0.08) / $22.62 = -0.4509 or -45.1%
Therefore, the closest choice is (B) -45.1%.

Question 11

Consider the following realized annual returns:  The average annual return on the S&P 500 from 1996 to 2005 is closest to ________.
A)8.68%
B)4.34%
C)5.21%
D)9.55%

Accepted Answer

The answer of Consider the following realized annual returns: ...

Question 12

Which type of investment has historically had the highest volatility?

Accepted Answer

The answer of Which type of investment has historically had...

Question 13

If a stock pays dividends at the end of each quarter, with realized returns of R₁, R₂, R₃, and R₄ each quarter, then the annual realized return is calculated as ________. A)R_annual= (1 + R₁)(1 + R₂)(1 + R₃)( 1 + R₄)- 1 B)R_annual= R₁ + R₂ + R₃ + R₄ C)R_annual= (1 + R₁)(1 + R₂)( 1 + R₃)( 1 + R₄) D)R_annual=

Accepted Answer

The annual realized return can be calculated by using the formula for compound interest: (1 + R₁) * (1 + R₂) * (1 + R₃) * (1 + R₄) - 1, which gives the growth rate of the initial investment over the year, considering the quarterly dividends. Therefore, choice A is the correct answer.

Question 14

McCoy paid a one-time special dividend of $3.20 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $62.93. What was your capital gain yield from holding McCoy?
A)4.07%
B)6.11%
C)33.89%
D)40.70%

Accepted Answer

C) ($62.93 - $47.00) / $47.00 = 33.89%

Question 15

What are the two components of realized return from a stock investment?

Accepted Answer

The answer of What are the two components of realized...

Question 16

Consider the following price and dividend data for Quicksilver Inc.:  Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it after the dividend had been paid at the closing price on January 26, 2005. Your capital gains rate (yield)for this period is closest to ________.
A)0.93%
B)1.02%
C)-3.85%
D)-2.93%

Accepted Answer

To calculate the capital gains rate (yield), we need to determine the percentage change in the stock price from the purchase date to the sale date. 
Purchase price on December 31, 2004 = $15.77 
Sale price on January 26, 2005 = $15.25 (closing price) + $0.09 (dividend) = $15.34 
Percentage change = [(Sale price - Purchase price - Dividend)/ Purchase price] x 100% 
= [($15.34 - $15.77 - $0.09)/$15.77] x 100% 
= -0.02608 x 100%
= -2.608% 
Therefore, the closest capital gains rate (yield) for this period is -3.85%, which is option C.

Question 17

Consider the following price and dividend data for Quicksilver Inc.:  Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it after the dividend had been paid at the closing price on January 26, 2005. Your total return rate (yield)for this period is closest to ________.
A)0.97%
B)-4.00%
C)-4.97%
D)1.06%

Accepted Answer

The answer of Consider the following price and dividend data...

Question 18

The Ishares Bond Index fund (TLT)has a mean and annual standard deviation of returns of 5% and 10%, respectively. What is the 66% confidence interval for the returns on TLT?
A)-7%, 10%
B)5%, 10%
C)-5%, 15%
D)-10%, 10%

Accepted Answer

The 66% confidence interval can be calculated as follows:
Lower bound = Mean return - z-value * annual standard deviation
Upper bound = Mean return + z-value * annual standard deviation

where z-value for 66% confidence interval is 0.43 (from z-table)

Lower bound = 5% - 0.43 * 10% = -0.3%
Upper bound = 5% + 0.43 * 10% = 10.3%

Therefore, the 66% confidence interval for the returns on TLT is -0.3% to 10.3%.

The only choice that includes this interval is C, which is the correct answer.

Question 19

Consider the following price and dividend data for Quicksilver Inc.:  Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it after the dividend had been paid at the closing price on January 26, 2005. Your dividend yield for this period is closest to ________.
A)-7.80%
B)-8.53%
C)0.74%
D)0.81%

Accepted Answer

The answer of Consider the following price and dividend data...

Question 20

The average annual return over the period 1926-2009 for the S&P 500 is 12.8%, and the standard deviation of returns is 21.4%. Based on these numbers, what is a 67% confidence interval for 2010 returns?
A)-1.3%, 20.5%
B)-8.6%, 34.2%
C)-25.8%, 54.7%
D)-25.8%, 47.9%

Accepted Answer

B) 11ea84dc_f53b_cd5f_9a63_cf84e8032745_TB1316_00_TB1316_00

Quiz 11: Risk and Return in Capital Markets

The average annual return for the S&P 500 from 1886 to 2006 is 15%, with a standard deviation of 25%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

The average annual return over the period 1926-2009 for small stocks is 21.2%, and the standard deviation of returns is 21.2%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

Which of the following statements is FALSE?

The average annual return over the period 1926-2009 for the S&P 500 is 12.0%, and the standard deviation of returns is 21.3%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

The average annual return for the S&P 500 from 1886 to 2006 is 5%, with a standard deviation of 15%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

Consider the following realized annual returns: The average annual return on IBM from 1996 to 2005 is closest to ________.

McCoy paid a one-time special dividend of $3.40 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $63.52. What was your realized return from holding McCoy?

The average annual return for the S&P 500 from 1886 to 2006 is 9.5%, with a standard deviation of 18%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

Which type of investment has historically had the lowest volatility?

Consider the following price and dividend data for Quicksilver Inc.: Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it at the closing price on December 30, 2005. Your realized annual return for the year 2005 is closest to ________.

Consider the following realized annual returns: The average annual return on the S&P 500 from 1996 to 2005 is closest to ________.

Which type of investment has historically had the highest volatility?

If a stock pays dividends at the end of each quarter, with realized returns of R₁, R₂, R₃, and R₄ each quarter, then the annual realized return is calculated as ________.

McCoy paid a one-time special dividend of $3.20 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $62.93. What was your capital gain yield from holding McCoy?

What are the two components of realized return from a stock investment?

The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of returns of 5% and 10%, respectively. What is the 66% confidence interval for the returns on TLT?

The average annual return over the period 1926-2009 for the S&P 500 is 12.8%, and the standard deviation of returns is 21.4%. Based on these numbers, what is a 67% confidence interval for 2010 returns?

Quiz 11: Risk and Return in Capital Markets

The average annual return for the S&P 500 from 1886 to 2006 is 15%, with a standard deviation of 25%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

The average annual return over the period 1926-2009 for small stocks is 21.2%, and the standard deviation of returns is 21.2%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

Which of the following statements is FALSE?

The average annual return over the period 1926-2009 for the S&P 500 is 12.0%, and the standard deviation of returns is 21.3%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

The average annual return for the S&P 500 from 1886 to 2006 is 5%, with a standard deviation of 15%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

Consider the following realized annual returns: The average annual return on IBM from 1996 to 2005 is closest to ________.

McCoy paid a one-time special dividend of $3.40 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $63.52. What was your realized return from holding McCoy?

The average annual return for the S&P 500 from 1886 to 2006 is 9.5%, with a standard deviation of 18%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

Which type of investment has historically had the lowest volatility?

Consider the following price and dividend data for Quicksilver Inc.: Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it at the closing price on December 30, 2005. Your realized annual return for the year 2005 is closest to ________.

Consider the following realized annual returns: The average annual return on the S&P 500 from 1996 to 2005 is closest to ________.

Which type of investment has historically had the highest volatility?

If a stock pays dividends at the end of each quarter, with realized returns of R1, R2, R3, and R4 each quarter, then the annual realized return is calculated as ________.

McCoy paid a one-time special dividend of $3.20 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $62.93. What was your capital gain yield from holding McCoy?

What are the two components of realized return from a stock investment?

The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of returns of 5% and 10%, respectively. What is the 66% confidence interval for the returns on TLT?

The average annual return over the period 1926-2009 for the S&P 500 is 12.8%, and the standard deviation of returns is 21.4%. Based on these numbers, what is a 67% confidence interval for 2010 returns?

If a stock pays dividends at the end of each quarter, with realized returns of R₁, R₂, R₃, and R₄ each quarter, then the annual realized return is calculated as ________.